Just what is the right price?
If we’re going to Learn to Love Our Price we’d better have a good idea of what the right price is.
In my experience there are a more right prices than might seem obvious:
- Marketing will set a price according to their analysis of the market, relative strengths of the product against the competition. An exercise in ticking boxes.
- Finance will have a target gross margin – costs plus the margin equals price.
- Sales Management will want to win the deal. Price will get softer as quarter end nears.
That’s dealt with our management. The customer is entirely different matter. Customers understandably want to buy the best product, at a lower price than worst.
So, what’s the poor sales guy supposed to do? In lots of cases he/she ends up fighting with everybody – management and customer – to get agreement to any price which will make the deal work.
When it comes to order time, all the cost of sale is spent. Losing the deal consigns that investment to the loss column. Winning the deal brings in margin to help fund the overhead. Any deal that’s $1 more than the cost of the product is better than nothing
So now we have five “right” prices.
But the real “right price” is the maximum the customer will pay, and that’s the “emotional limit”. Sales guys who understand about price are much better placed to make deals happen, and usually make more money for themselves and their employers. They don’t need to fight everybody. They just need to be able to explain. They need to lead their business and the customer into a deal which works for everybody. When Closing Time comes the sales professional leads from behind 
So what determines the maximum the customer will pay?
1. The relative strength of competitors and their price.
2. The value perceived by the customer – in B2B this might be ROI, in B2C it’ll be what the purchase “says” about the customer.
3. The emotional limit – the point beyond which the customer won’t go, regardless of perceived value
Regardless of what sets the emotional limit, that’s where our deal should be. Finding out where that emotional limit sits is a much bigger subject we’ll discuss later.
For the moment here’s a couple of examples illustrating the point.
- Working for a supply chain optimisation company I got involved in a project with a major pharma company. With modelling we proved savings of at least $10 million/year. The company wanted a price of $1million but the prospects emotional limit was $150k. Regardless of the benefit he just wasn’t going to pay more, and he didn’t. We lost the deal when we could have had $150k and an opportunity to grow the relationship way beyond that.
- Working with an ERP company and selling to another pharma company I managed to sell a $3 million support package when the cost to us was virtually nothing. This prospect’s emotional limit was set very high, because his entire business in the USA was threatened – $8 billion at the time.
Bottom line is? In the first example I didn’t take a leadership role with my management, and should have done. In the second example I spent time persuading my management. They allowed me to push to the prospects’ emotional limit.
When it comes to Closing Time the sales professional knows where the deal is and leads customer and management to the table where the cards have already been dealt.
These are just my ideas. How do you find the right price?
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